DeFi By Design EP#21: Insuring DeFi 101

Transcript

welcome to d5 by design where we talk all things blockchain and cryptocurrency while striving to educate empower and enrich what's going on guys real quick break for the d5 by design podcast sponsors and a defy slate sponsors who make this all possible first we have ave a money market protocol that allows you to borrow and lend and leverage your assets to earn interest uh right so if you want to deposit some stable coins in there currently you can get three four five six eight percent apys on stable coins which else any bank in the world uh as far as we're concerned you can deposit uh any uh ethereum based asset that is listed there borrow against it you can borrow stable coins you can borrow other assets like ether wi-fi

link even the ave token itself ave is the go-to protocol for any sort of borrowing lending check it out at app.com the next one we have is access auxis is a new crypto wallet auxis.com you can store all of your crypto there they have quite a few options uh they're integrating new dex features soon um and allow you to have a non-custodial way to store your crypto safely off of centralized exchanges and also just not in a meta mask or in your own ledger a bit of extra security there next we have mcdex mcdex is a decentralized perpetual swap protocol basically allowing you to trade on leverage uh on the ethereum chain right they're coming out with v3 very soon at by time you're listening this might already be out they are super

solid team um and they're pumping updates and allowing you to trade decentralized perpetual swaps on eth link and a few others all on ethereum all decentralized so that is mcdex next video ramify ramify is a decentralized stablecoin it's an algorithmic stablecoin that is pegged to the purchasing power of commodities and then basically it measures what value one dollar buys in terms of a commodity index each week and then it provides you with essentially a store value that allows you to continuously evade inflation while maintaining you know a stable aspect as if it was a dollar and that is the ramify protocol check them out on twitter finally we have diversify it is an l2 decentralized exchange they allow you to basically trade in a

gasless and feedless manner big volumes whatever quantities you need it's almost like a centralized exchange on ethereum but you are the custodian they do not hold your coins as a centralized exchange would you have full control full power so really it's almost like centralized exchange capabilities on a decentralized exchange and that is diversified all those sponsors make this possible i know it's a lot to take in but thank you very much for listening and let's get back to it what's going on guys we're here it is january 17th a few weeks after our first recording with the cover protocol team we have cucumber and d5 ted here some of the nicest guys in d5 you'll see ted all over twitter helping noobs out with this that and the other

making educational points cucumbers in the background getting after it so we are excited and a bit weary to learn and talk a bit about what happened with the cover protocol hack which was on the 28th or the 27th in that time it depends on what time zone you're in of course and we're gonna explain kind of what happened and hear what ted and cucumber have to say about their revival um obviously we want to learn about what happened in a chronological event but we're definitely keen to hear about what the revival is going to be how the cover protocol has pushed out of this um you know and everything in that matter so welcome ted and cucumber again it's good to have you guys back after holidays yeah thanks adrian thanks for having us

yes sir yes sir um all right so twitter blew up one day cover protocol hack token is dumping talk us through that day for you guys what did it look like on y'all's end um obviously boom you guys are on your computers trying to fix this as best as you can or figure out what's going on what did that time look like when you first figured out what happened with the hack and yeah what did that first day kind of look like sure so i'll uh this cucumber here i'll take over so on it was really everything was unfortunate about it and obviously we still just feel terrible about what happened but um the exploit occurred in the middle of the night for most of the team so when we first realized that

excess minting was going on the only people that were awake were myself and ted actually and unfortunately what that meant is there was nothing that we could do because we needed the dev multi-sig wallet to shut off the farming contract and we weren't able to do that for another three hours i mean obviously i didn't sleep but there's nothing i could do on my own so until kiwi woke up there was nothing we could do to shut it off and by the time he woke up we did shut it off but unfortunately the one of the explorers had already already minted you know like 40 quadrillion tokens or something so for all intents and purposes cover token was worthless at that point so a little bit about the vulnerability uh

basically it was a vulnerability in the farming contract for cover it didn't affect any of our core contracts so any of the funds that were staked on the the core operation of cover and providing coverage for protocols that was all operating it was our token itself to have the vulnerability and it was really as simple as one line the code needed to be five lines higher and then everything would have been fine it was just an oversight and it was missed by a lot of people it was this by our auditor was missed by lots of people in the community that reviewed the code and obviously by the team as well it was actually discovered by accident a user did did some actions in a certain order

and realized that they minted slightly more tokens than they were supposed to and then based on that they were able to figure out that if they did it in a certain way they could actually mint an unlimited number of tokens and so there there were multiple people that discovered this around the same time because after the first exploiter discovered it other people that were watching you know doing on-chain analysis and stuff realized what was happening they started to investigate and so then we ended up with some some people that exploited it who um you know they were malicious they were they were doing it to steal east from the sushi swap folks and then there was a i guess you could call him a white hack white hat hacker who did the the 40 quadrillion mints and

drained the pool completely and then sent the remaining east to us um i think at that point i mean it still would have been better for us if that if that attacker had just notified us but it is what it is so the the net result of everything was that the token was effectively into uh infinitely minted and then the the uno swap and sushi pools were drained of all their ease and you know we got back a decent amount of the ease in those pools but not all of it um and you know since we have come out with a mitigation plan where we've released a new token and distributed the east that was returned to us but i'll let ted talk a little bit and we can get into the future of the token and the protocol a little

bit later yeah hey ted real quick um one of the things that i'd like to make sure is clear for you cucumbers especially and of course ted as well as being on the behind the scenes in the developing space in d5 can be daunting it is a re it is a responsibility almost that you that you voluntarily take upon yourself because you want to be a part of what's happening so while there there might be people who have thrown a lot of fault towards the cover team cucumber you or other devs i would like to say that the fault being assigned to the developers and to what has happened or to the auditors etc it is it is uh it is a learning experience and

you know everything that we've seen here is uh it has been worked on and ted is going to explain how it was mitigated and the revival um you know but cucumber i guess i'm trying to make you feel a little better emotionally but you know it's not really your fault now yeah i mean can i add something at the end of the day it is our fault to some extent i mean we're the ones that didn't catch the the error i mean but it also you know we're humans and this looks security and deep is tough and we're trying to build products that will change finance and do it quickly and and things happen you know um look we we all feel terrible about it i do want to point out also because we need to clear the air a little bit

there's a lot of people that um may have lost funds you know and they blame us but we as a team you know we haven't sold any of our tokens i don't know if any everybody knows that but we have tokens that were distributed to the dev team and we have a vesting schedule but even the tokens that are vested the team still holds on to them and we haven't sold any of them and and so like that we're doing this for the long term of the project and for the long term of defy you know obviously we would like one day to be compensated for it but we also we want we want this project to be a success so i just thought that was worth saying yeah no doubt i mean it's going to be very important for anybody who gets involved with cover

protocol or token holders alike to be insured if you will um you know not insured in an insurance way but like you know be convicted that the developers and team are still 100 percent in it uh for the long term and it to win it so ted let's talk about that you know how has the how has the revival process came along um you know what have you learned what's on the horizon um yeah give us the quick and dirty well i've learned that let's see different to cucumber i'm not i'm not a developer myself so coding isn't my background so um you know if if anything you know i'd probably make sure i've got a defibrillator somewhere along if i'm going to work in

um you know defy just closely again um yeah the experience to me was was was a shock at the time i mean yes you're right cucumber was up at the time uh with me um now look a lot of people will say well why don't you say something why don't you come out on twitter to say anything well at the time the the exploit was quite small when we have were alerted to it at the start um and i mean you're kind of damned if you're doing damage if you don't in this space i mean we had a quick discussion about it and because we didn't fully understand what was going on the last thing we wanted to do was actually announce it right so that there was this announcement that hey we've got an issue no one's going to stay away you it's

like can you just leave our contracts alone for a bit we just want to figure this out like no no someone's going to come and take advantage of that if we if we announce it so we we tried to make sure that we could um we could solve what was going on and at the time we actually had so we had the multisig actually ready to sign for the stop of the uh so we could stop the the minting in the in the blacksmith contract that we had a problem with and um and funnily enough at the moment that we had kiwi up and away created a sign that i'd i'd refreshed ether scan and that's the moment when we had um more numbers than i've ever seen in my life as a token supply so you know that was an interesting

experience and the learning from that i really is you know we did everything that we possibly could from a safety standard we got the audits we've partnered with yearn um we you know it's not just auditors looking at this we've got some really smart people that look over our code regularly so you know to have it found by chance was it was gut wrenching but it's allowed us to um remove it it's allowed us to make some changes now to the to the cover token that um i think for the better in the long run so more fitting in with andre's and the yearns um ethos is around removing the need for farming rewards so farming rewards are more of just a dilutive

um you know and it's not really a sustainable way to generate um income for liquidity providers or market may use so we've gone with the um notion that we're going to stop all those rewards and build this off feeds alone and then on top of that it's around creating we wanted to make sure that we're capital efficient so we've shifted our focus from it being a you know a farming token to it is now its governance token and then um it'll be uh how do we add more utility for the cover token within the cover protocol and that's going to be something that we work with with our community and make sure we get that right but i think the really i i think the really important thing is that we've

just been concentrating so hard on the v2 contracts uh multiple audits will come out of that to make sure that those are fully reviewed before we put those out into the market and i mean cucumbers probably mention it very shortly but yeah we're pretty excited for v2 it creates a lot of things that we've been wanting uh capital efficiency is one of those in regards to how our capital is used in a pool uh but it also gives us the ability to be a bit more robust in these markets um that we're creating and no longer just be a binary bet on a uh on a critical coverage and you know hopefully in the very very near term we might be just covering protocol risk either or smart contract

which will be actually providing some actual financial risk instruments right cool that's awesome so um not only have you focused on getting the the the new cover token out and compensating those who are affected and solving all the problems in a public and pr manner um right but now we're focused on really improving getting v2 going um you know and basically building out the original vision if you will that has changes every every few days it seems there's different things that come up and adjust and change paths um but you know effectively uh there is a newfound uh desire and focus on really getting this to be the best

it could be and um you know now that that everything that has happened is in the past um there you know you guys are as a team are working to basically probably harder and and and smarter now even uh after what has happened as you said from what you've learned right to build cover protocol to be you know as best as it can be um you know and that is exactly what the cover token holders want to hear right those of those who are on the team you know who participate in governance those who are community members those who are um you know who help on the marketing side all side right you know for the betterment of the d5 ecosystem you know that is effectively um you know where your time is you know is best spent and what you've seen as to

be the next step um so i'm extremely happy to hear that whether i am a holder or not which fyi i did have some tokens right and the hack happened and i got reimbursed totally cool uh through the whole tool and the migration system uh we didn't touch too much on that but obviously the new token is out and about with v2 coming so yeah i mean that that about it like explains it i mean i'm trying to think of like from a consumer side like what questions i would have but i don't i don't really want to bog you guys down with kind of on the past uh but needless to say i'm excited for what's to come with the urine ecosystem with and with cover protocol i mean do you guys think that we missed anything that somebody who is you know who didn't hear

this would want to know um yeah so i think the only the questions that we keep getting of course are you know why did you why do i not get any of the new cover token and that you know we had to make a decision to take a snapshot at a certain point and what was really important to us was that long-term holders of the token were renumerated uh and then also that the exploiters weren't able to claim any of the new token right and so that's why we took the snapshot where we took it that had the unfortunate effect that there are some people who then sold their um who sorry who bought cover token after the snapshot who then are not able

to claim the new cover token right those are the people that end up losing in in our in our plan and that's unfortunate but we couldn't make everybody whole that was just that was just the reality it's impossible to make everybody whole so we did something that we think makes the most number of people whole and especially the people that were long-term holders of the token so that's that's basically why we did it the way we did it cool yeah i mean there was a lot of speculators who were buying the the 98 dip in an attempt to make a flip um you know i'm sure some did just that i'm sure some got burned such as the game of speculation um exactly i'm glad that you cleared that up but uh yeah and so we're really excited about v2

um i mean by removing the farming uh i think we've simplified things so now that we can spend more time focusing on what really matters which is building out the the coverage part of the of the platform you know and getting v2 out into the market so in some ways maybe this has been good for us but obviously we we could go back in time we would uh have you know fix that vulnerability when we release the contracts money yep cool well um i mean that that sounds good i appreciate you coming on and being open about this obviously it's probably a touchy subject and i'm sure um this has been on on your mind at the end of the night often with your head on the pillow it's as weird as that sounds i mean this is

uh this responsibility that you've endeavored on is you know it comes with ups and downs here we are trying to build out the rest of 2021 strong um you know and i'm glad to be around to see the next stage and evolution of cover protocol uh that being said any closing thoughts uh ted or cucumber let cucumber finish off with stuff with the final clothes for me it's just um yeah you're right you do take on a big responsibility when you decide that you want to build a project here in d5 um especially when you've got tbl um you've got other people's money at risk and you know i feel terrible for the speculators but you know i'd feel worse if the lps lost all their money

to be perfectly honest i mean without lps we don't really have an environment for those speculators to come and trade in uh and they take on them like a a big risk already by locking their funds up in these protocols for you to trade with so you know that's you know if anyone was gonna try and be made whole it was definitely them to start off with um and then yeah yeah at the end of the you know trading's trading and it's a game of information and um you know hopefully some people will learn that you know that ether scan does exist and that you can use that to your advantage um you know and if this is the first time that you've understood how easy the scan can work for you then learn how to use it it's a great

tool it's it's the whole you know it's it's everything that you needed it's to the minute data so hopefully we'll be able to um to also help use that in the future as well to um to provide better products and cucumber yeah if you want to wrap us up with anything else that uh yeah sure i mean i just want to reiterate everybody on the team feels absolutely terrible about what happened i mean you know i get like like we've said before this just has to be a learning experience for us but just rest assured that the team is still committed to the project i mean we haven't lost a single person um so it's still the same group of six of us you know so we're gonna we're gonna carry this through and try to make cover protocol as that you know

the best project we possibly can so and one last thing is that the team is in the we're in the process of going through what those initiatives are we already have a few worked on but we're putting together a um a fund that's donated by the team uh and that will do a number of initiatives uh with our own kind of team team tokens to try and um you know provide some extra things in d5 that that maybe just aren't there today right and and ted and i have already donated to that fund um so you know just just for people to know like by doing that we hope that we we have this this fund that can also be used for you know marketing and possibly hiring other devs and stuff to

further the protocol so um you know we're putting our money where our mouth is good and that is what the d5 ecosystem as a whole wants to hear especially the cover token holders um you know and again we we we appreciate your openness and ability to share transparently and we assume from a public veil of good actorship and wanting to make the best for everybody uh not and obviously that's verifiable on chain with what's happened and what's been explained and we expect you know cover protocol to rise hard not just in price but in terms of tvl and community and overall as a narrative for the d5 space as a big part of that quote unquote insurance we expect cover to be right up there um

you know and we're looking forward to the growth at d5 slate and i know y'all are and everyone who is listening to this is um so again i appreciate you guys coming on you all have absolutely crushed it this what's following if you're still listening is going to be a great podcast i mean really explain the protocol well what's going on insurance you know what's big in the narrative themes and trends that we've explored a bit of posting in there as well ted's got a good accent y'all would love to hear that one um and yeah sounds good boys thanks a lot andy thanks andy appreciate your time man what's up guys it's your boy andy here today with another episode of d5 by design episode 20 big two zero we've been at

this for a few months now actually it's freaking crazy a lot of stuff going on d5 is going crazy i mean there's just new stuff new farms recently there's been a rebase token boom everyone's trying to find the best way to create the next stable coin and rebase their way to being a millionaire while all others get wrecked welcome to the nature of the nascent markets robbie how you doing today buddy oh i'm doing well andy as always it's a beautiful day in florida i haven't had uh i haven't had a day this nice and in a while it's been kind of chilly down here but i'm doing well staying with it exams are finishing up and uh turning my head to crypto and d5 full time so i'm happy to be back on d5

by design as always i'm super excited to be kicking off episode 20 with cucumber and ted from cover protocol i'll hand it over to them uh ted how's it going man how you doing today yeah i'm i'm doing great rob uh thanks for having us on today guys um really appreciate that not as uh not as sunny where i am it's uh early morning melbourne australia so uh enjoying a a nice big coffee nice nice and cucumber how you doing this morning buddy or this afternoon i suppose uh it's actually the morning for me too i'm on the west coast right now but it's not as nice as it is in florida i'll tell you that yeah i'm doing pretty well just uh excited to keep going with cover and we're rolling out governance

in a few days and looking forward to that super uh maybe you guys could give a little bit about yourself just a quick intro how you got started into d5 and crypto and and leading up to cover and how everything got started there yeah okay well i'll um i'll give my bit as to kind of how i got started in and i'll leave the coverage genesis story up to cucumber a little bit he tells it um quite well so myself i've been in crypto for about three and a half years came in before the last large bull run didn't profit well enough from the last bull run to quit my job then you know spent three years in the trenches in the winter uh you know it's learning and studying every day but i come from a traditional finance background so i spent um you know nearly 18 years um you know

doing things across financial insurance in australia i worked for ge capital for 10 years and um recently for the last five years i was involved with you know doing a lot of uh commercial type um you know lending and insurance so d5 really stood out to me as it started to progress in the ethereum network uh late last year and uh i really pivoted towards i wasn't really a big ethereum back then so i pivoted towards d5 then and you know in the last i don't know nine months we've just seen 70 primitives that are available in traditional finance moved to d5 and it's just so exciting now and um you know when the opportunity came along to you know put down the the pieces for a a different way of

doing a kyc kind of coverage protocol that met all the or the combinations of my history and i i really wanted to be a part of that so that's my that's my foray into crypto really and the cover team but i'll let cucumber um give the genesis story of the cover protocol itself sure so i guess i'll start with my own personal introduction first so i also come from a traditional finance background specifically fintech you know i've been writing web applications for financial web applications for seven plus years now and then back in 2017 i got into crypto first mostly with bitcoin but then naturally you know you move on and look

at other things as well i was able to quit my job in early 2018. you know obviously the timing wasn't that great but it still still worked out for me at the beginning i was mostly programming um trading type applications but then you know this year with the boom and d5 i got more interested into smart contracts and actually building applications on top of ethereum and so yeah i mean i think it's just been great i think it's the best product market fit that crypto has ever found and it definitely fits my background skill set really well so as far as the the genesis of cover protocols so basically what happened was alan one of the other founders he created safe which was a shield farming opportunity it was

basically for those that don't know you could stake nfts that represented coverage on nexus mutual or you could stake your your raft nxm and then there was a there was a pool two also on balancer with uh rapnek uh nexus mutual token sorry safe token and die in any case it blew up he got uh retweeted by andre and people just thought that the whole farming concept was it was super super cool and so he got you know hundreds of millions of total value locked within a couple of days and just a lot of publicity around it and you know i've been interested in the insurance space in d5 for a long time um not so much because

of covering smart contracts which is what we do right now but because of the long-term opportunities there to cover things in the real world hopefully right which has been the dream for crypto people forever of course but in any case so i had an idea of a protocol that i think could cover smart contracts but also extend to all those real world applications one day and so i pm allen on discord and we started chatting about it and he liked the idea and he started talking to other people on on twitter and other parts of social media about it and there was some validation of the concept and so we decided to work together and you know also because of the just

the success of his original farming concept other people started reaching out to alan and suddenly we had a team you know out of nowhere including ted of course he he reached out to allen very early on i'm not sure the exact way that that happened but uh suddenly we had a discord server with a bunch of people in it and yeah and we had a team and we had a concept and we started working and we found that we actually worked as a team you know that we could get stuff done we could ship code and so we've we've been able to launch this and i guess a little over two months now and it's it's going great like i couldn't have imagined how how much traction we would have gained so far a few months ago yeah it's been wild

this story was crazy i mean all the migrations is just like it almost seemed like the whole safe concept and cover was just gonna kind of fall away into oblivion there at the last second but you guys obviously pulled it together i mean now i mean the collaboration with yearn and the and obviously the price increase which we won't go into too much on that but overall like yeah it's been it's been quite the rebound um and yet quite the story i mean obviously a very needed concept in in d5 you know and you know here we are putting together anonymous teams kind of like a rope did it it just kind of reminds me of that it's just crazy when you put some smart people in a disk or telegram server what can get done you know quickly and uh and you know how

well people can collaborate yeah absolutely um so i think it's just it's one of the first times in human history where that can happen i mean where you can just take people from all over the world and they can organize so effectively we've just got all the tools now at our disposal it's it's really amazing you know to be working with people from all over the world and you guys were able to ship in two months and i i think part of what you said was the validation around that concept maybe early on it was a mentality of all right build it and they will come but that's not really what happened with you guys it was more like oh here's an opportunity it already has kind of an organic community let's attack this problem because we have the tools and we know how to get

it done yeah the way i describe it is i think that i had had the concept for a long time but i didn't have a platform for it and alan suddenly had a platform for it um in terms of like you said that community and just people that were interested in us building something for them and so it was just a natural collaboration between the two of us as a result sweet sweet um so i'm definitely curious as to uh the urine ecosystem growth kind of what you think of it on a broad scale just like the acquisitions obviously y'all are a part of it but you know overall what do you guys think about that um just the overall growth of that concept um y'all being a part of it how did that happen you know

what's your thoughts on like the yearn takeover if you will um you know and and how's that been going yeah well i mean that's a really good question i mean a lot of people have this concept of a merger where you know the traditional sense is you'd come and buy out their stock right or you'd have some sort of option where you know you'd remove their token from existence and everyone being moved over but that's not what it is it's really an alignment of of our thought process of our values of the things that we hold important so things like capital efficiencies you know something that's very due to andre creating that and b and just being able to to remove friction from the process so

what we've got through yearn now is this this packaging of the d5 primitives into one kind of ecosystem and it's not designed to kind of make sure that it's all built together but we can collaborate that dev resource we can collaborate the operations resources we can collaborate the marketing resource we can collaborate all those resources now to try and get the most out of it and a lot of people um think that you know now that it's a takeover it's not the case we are building our own core product protocol and going with the original vision that we've always had and the guys are still working on our on our b2 but for the yearn relationship um you know there's things that they're

going to need from us to make sure that that also works in their ecosystem so what do i see from them i see them just creating a frictionless capital efficient ecosystem especially with like the collaboration with acropolis basically the same product almost with the vaults basically being able to increase tvl put strategy creators together um yeah and just grow that and i mean i think it was definitely a good idea that everybody who was a part of it all protocols all people are all able to still work on their own token their own protocol their own their own vision as you said because i mean i think with a little too much of that takeover attitude you start to force yourself into like the centralized entity

realm and that's you know that's of course against all things that uh that d5 would stand for extremely interesting and a net positive on the ecosystem i would agree i mean like the news the people just can't get enough of this i mean i don't know it's the andre effect but like there's just like this realm of like like like a pedestalization of uh yarn and andre and i mean here for it because it was like like the first fair launch but also the pedestalization of any one figure can be detrimental to a you know a greater ecosystem yeah and look absolutely i think the um you know we get a lot of benefit from it because who doesn't want andre having a look over your code every now and then um you know just suggesting ideas of how it can improve here how it can improve

there or or how you can gain the system for users a bit better so i mean his insights are valuable right and you know a lot of people see him as this over arching demigod that's not the case i mean the guys out there constantly shipping code uh that's what he loves to do solving those problems and he's got a massive team there that he leans on so it's definitely a team-based um ecosystem and you know we're all trying to row the same way as well we want to grow the tbl we want to bring new users into the space you know so a lot of the concepts that have also come so if you think about that acropolis type thing i mean at the end of the day they're more looking towards that institutional level

type of investment so you know it doesn't it makes a lot of sense as well to kind of if you've got like pickle acropolis people say well they're kind of a similar thing how does that fit into an ecosystem it's like well different users use different tools for different things right so yearn their ux it's very much towards the everyday person coming along and just doing something with their stable coins right or being able to get more return on on a particular token whereas you look at acro and they're definitely towards institutional level investment they want people that are you know institutional sophisticated investors know what they're doing and going to have high tbl so they're aligning themselves to the

different use different user bases as well without having to change their own ecosystem to meet all user bases which i think is quite smart and that's the beauty of these legos is that you create the core component in deeper in the stack and everyone can build on top of it oh yeah and that's especially important now that um it seems like more everyday people are getting introduced to d5 um whether it's from the bitcoin rabbit hole or starting with ethereum now andy and i were just talking last night and uh some of those normie friends vows are starting to hit us up again like uh where do i go and normally that's a top signal right i mean it makes like the people that are here every day kind of

weary of you know when there's newcomers coming in but it seems like urine is providing that like an entrance to the rabbit hole um and then as you dive further and further maybe until you hit acropolis and that's where you get some more like uh complex fun functionality but what you're just doing uh exactly what you said removing the friction from the whole process allows people to explore much more seamlessly and to someone that isn't familiar with what's going on uh a simple ux and not a lot of hesitancy and um friction going going from application to an application is really important because they're going to be able to explore just more more naturally and it'll be a

more seamless flow and i think there's something to be said about the the buzzword of defy as well i mean we're called d5 slate there's d5 this d5 that there's there's d5 everything coin gecko they have a d5 tab there's a lot more people that are definitely interested in how to defy now rather than just like how to buy bitcoin how to how to coinbase it's like how do i defy bro like like come on um yeah absolutely yeah i've got um normie friends that are in the uh you know kind of financial planning um you know wealth management type um roles and you know they're saying you know okay you're gonna have to probably enlighten me a little bit more into some of these defy things because it seems like you've got access to stuff

that i would have access to it's like yeah i do man except i don't have to kyc myself i don't have to be an accredited investor uh you know and i can you know i can basically tell all you guys charging fees to go and get it and that's the beauty of it right is remove that middleman remove the fees remove the friction and have and enjoy managing your own finance so the the the i think the thing that's missing right now to how to d5 is some serious learning curve education because that's definitely a it's a different level of education we're not teaching people how to use a wallet we're not teaching people how to what a blockchain is if you get to d5 you should have an understanding of some of those things already and that's where you should start but yeah that d5

primitive is definitely a steep learning curve so um and then you get into like yield farming and shield mining and coverage and you know decentralized derivatives and options and all these things and it's just like it's a lot um you know it's like well if ftx would add a sleep perp i'd happily short it asleep oh my gosh uh so for those of us who don't understand what shield mining is because it's been a thing with uh with nexus um and i'm actually definitely keen to uh explore the relationship and kind of how you guys view that collaboration versus competition uh to you know to overall insure the entire industry

because obviously there's there's less tvl locked in those two protocols than there is in all of d5 but we'll get to that in a second um but for shield mining definitely curious if we could get a beginner's technical intro on kind of you know what what is shield mining so if i hear this concept again and i'm listening and you know i can kind of understand what sure i mean i'll take that one so uh shield mining is basically taking your coverage of something in the d5 space up to this point it's only been smart contracts the only coverage that's really offered is smart contracts but it's taking that coverage staking it and then earning a farming return from that coverage so basically it's incentivizing you to cover your yield farming investments to cover

the smart contracts that you stake in it's as simple as that previously it was done by taking nfts that were wrappers around coverage on nexus mutual for us it's a little bit easier because our coverage is actually tokenized directly as a fungible erc20 token so you have a token that you can just stake natively but it's as simple as just earning a return earning a yield on your coverage that's covering some other investment that you made in defense right and so how do i get coverage on cover and then how do i shield mine i think i understand but for those who are listening sure so so coverage on our platform is as simple as owning what we call a claim token on any of the protocols that we cover

and so you can just buy that that claim token on balancer you can go through our ui or urine is building out a ui now that will allow you to do it directly from the urine website and then once you have that claim token which is just a normal erc20 token you go to our ui and you stake it in our shield mining tab and then you start earning cover tokens it's as simple as that and then we have a few protocols now that are also incentivizing with their own token um so namely badger and boring dow so sometimes you can double up on the rewards like you can on curve in some of their pools so it's pretty cool cucumber can you explain a little bit more about the separation between cover and nexus mutual um and kind of how that relationship

started and then maybe you branched out and started doing some different things sure um i mean the relationship at the beginning was more of well they're the really the only coverage provider out there so if alan were to do shield mining which he wanted to do he needed to find a way to make it work with nexus mutual and the way that he did it was through nfts but there wasn't really any any relationship there i mean we have spoken with their team but we you know we're going about about things in a separate way we have a completely different approach to them i wouldn't say that we're antagonistic or any way in any way i mean neither one of us covers even close to the total value locked of d5 so there's just

so much room for growth on both of our parts you know um but we do we do both about things in a different way you know our our capital is from the community so it's really community driven coverage whereas there's they have more of a traditional setup with an actual nexus made up of members that pull their capital together so you know i would i would argue that theirs is a little bit more centralized and ours is a little more decentralized but the trade-off there is that they have better capital efficiency than we do right now so so yeah i mean i would say that we're both working towards the same goal which is to cover d5 but neither one of us can do it on their own so in that sense we're kind of partners but other than that we're not really working

closely together and we definitely are approaching things from a different um you know technical perspective so yeah yeah yeah we had a podcast with them uh pretty recently and they're they're doing some interesting things but um it doesn't seem as really user-friendly as cover because you know like you said you can just go to the ui buy a cover token and then bam you're covered and you start uh shield mining yeah i mean go ahead sure i was gonna say you need kyc and you got to get accepted into the into the mutual yeah i would say that kyc is the the biggest barrier to entry from our perspective the other major difference is that nexus they try to spread themselves wide which means that they need to cover a lot of protocols but they don't cover

any of those protocols particularly deeply so they can't offer more than a few million dollars of coverage on any protocol whereas we're better at going really deep where we can offer a lot of coverage on one particular protocol as long as the capital gets staked on that protocol so that that's kind of more of the difference so they're basically trying to create a bunch of diversified risks for them for the mutual and they can do that by um covering you know 100 different protocols so those are the two main differences i would say and that makes sense that is the way to make sure that the underwriters basically are are getting you know their fair share of not getting all the claims in the world and then having to deal with them all at once you know deep um as you were saying

um but i mean i'll have you guys know that i was speaking to a few buddies last night about this upcoming cast you know they're decently interested in d5 they might own some bitcoin or something nothing crazy um and they were just absolutely taken aback by the concept of insurance on chain decentralized insurance figuring out ways to basically pool funds together to you know ensure decentralized protocol because obviously very very risky uh to be using d5 but that concept i mean to them was just extremely extremely interesting so i think that that can speak on the growth of you know what's to come sure and to be honest what excites me the most is really not even covering smart contracts it's all the other potential applications of decentralized money coming in to

protect risks in the real world and not to have that insurance company in the middle and let the market actually choose the price for that coverage i mean that's that's our long-term vision of course but in the short term we have to make defy safe so that people feel comfortable using it in the first place right and that that's so we need to solve that problem that's what we're working on first but yeah i mean go ahead kind of on that point sorry i just read this tweet from one of this guy wi-fi entrepreneur on twitter gigi's buddy he said uh and it kind of goes along right with what you're saying about about kind of getting rid of the insurance companies is what's next for cover to cover it's kind of like i mean the goal is to allow people to get coverage on anything does that mean cars

boats life home so um you know we need to be very careful here from a regulatory perspective obviously but yeah the sky is the limit i mean one of one of the reasons why we tried to design our model the way it is is because it can apply to pretty much anything i think what's going to make most sense after smart contracts though will be um type of parametric risks so that's those are things like natural disasters for example or flight delays flight cancellations stuff like that um because those are really easy to verify externally um and they also they come with they come with less regulatory

risk compared to say you know doing life insurance or something like that right which is which is a heavier heavily regulated industry in most countries especially the united states um so i would say it's probably more like natural disaster type coverage that we're going to go into next and then thing other things that are that are native to the you know to the crypto ecosystem like risks of gas prices being too high or things like that you know things that we can directly verify on chain will always be the easiest to cover um so and i think our model is easily extensible to all of those types of things but but in the short term what we're focused on is improving our capital efficiency um i i say that's the real weakness of our

protocol right now and so in our v2 we're going to be addressing that and then after that we can start looking at other types of risks to cover gotcha and the capital efficiency seems like a direct stepping stone into those other markets because obviously there's insurance providers in the real world that are providing earthquake insurance flood insurance hurricane insurance but if the goal of cover is to start breaching into those areas it seems like the capital efficiency is going to need to at least parallel those real world insurance firms that are providing rates right now and you know if the capital efficiency is better than what they're providing it seems like prices would go down and now earthquake

insurance hurricane insurance is cheaper than it was before sure um i would think that we have several advantages though already without even achieving capital efficiency which is first of all we don't have any paperwork middlemen costs right and depending on the industry that can be a very large percent of the total premium that you pay right the other thing that we will have is the ability to have completely flexible coverage whereas in currently with a lot of types of coverage they have mandated minimums and all kinds of things like that which cause prices to be higher than maybe the consumer wants them to be so right off the bat we won't have to deal with those kinds of issues so that should make things cheaper and so then if we can solve the capital efficiency

question on top of that then yeah i mean i think d5 insurance would just be way cheaper than what's currently out there i wonder what y'all's friends and parents and my friends and parents think about all this [Laughter] yeah here you know building systems building building decentralized insurance new new completely new you know primitives on this thing called ethereum um explain it to anyone in my family because i've gone i left my my like my full-time job in september this year to come and do crypto full-time and you know they they you know

explain it to me and you for in within five minutes i can hear their eyes have glazed over and they have no idea what i'm on about anymore and and to me actually every time i do that that's just uh a a reminder about how much how early we are how much further we have to go and you know when you try and explain this and within five minutes they just know what you are it's kind of like well we're nowhere near to the point where this can be properly adopted until you can have a conversation that lasts more than five minutes with someone on cryptocurrency in d5 it said i'll tell you what if if you give me a call every week with that accent man i'll listen to you for as long as you want buddy [Laughter] all crocky that's funny

oh rob i think you're muted yeah yeah i see the same thing ted and it it seems like there's no there's no uh interest in learning and maybe that that speaks to just like the normalized nature of you know people that we might be talking to in our in our direct family and like that you know there's not so much interesting about the insurance market when you first look at it you know like how much does um the normal person need to know about the capital efficiency of an insurance market if you were talking about the system you know 50 years ago when they were redoing insurance i don't know really the history of the insurance market but people's eyes probably glazed over back then too so

i completely agree with you that it does really show how early we still are but when you when you do start getting into those conversations with people that are in similar industries and maybe even traditionally in that industry um and haven't heard about the d5 way to do it so much those people are interested and that seems to be the validation for actually what's going on and to keep on progressing this direction yeah and i think that speaks to like this question that we literally just got uh on twitter about you know kind of getting the retail market involved um you know friends family other people and even people just in d5 people who own bitcoin or own ethereum um you know considered to be retail

traders and um you know this speaks a bit on like the road map as uh what is the plan to simplify buying coverage for the typical retail market um and then on the second half of that is what's the typical makeup if you guys might know of the users who are buying coverage now and you know how do you see that changing over time and and developing later in terms of uh the users who are actually buying coverage and you know how how you can make it easier for them yeah well i think um for the retail um customer that's coming into the market to try and use d5 the the in my history i've done i spent 10 years basically doing retail finance so i want to you know when you're trying to work out how to increase your market share one of

the best things you can do is take that customer journey and make sure that you can have um you can plot the experience along the way in any pain points um the beauty with d5 is that you can remove a lot of those pain points right off the bat because there's no middle person you're dealing directly with the protocol so it really comes down to how smooth can you make that journey how much how less steps can you take how much can you automate for them um to literally make it the click of a button so it'll come down to uh for greater retail exposure to buying coverage it'll just come down to making sure they understand what they're buying yes our level of education uh making sure that it's easy for them to buy

so when they are buying it it's a easy process and an understandable process so they it's it's not a confusing present that you know uh a lot of people went to our original ui and were kind of um like am i minting this am i buying it like how am i going through your your journey and that was some great feedback and yeon have uh definitely applied that with their uh version of the purchasing of cover on their platform so these small little changes will help get us there from a front end point of view and in that experience um but i might let i'll let you come and talk to some more of the technicals around what we can do there to to improve that but the makeup of users so far just

uh either they're definitely not betters in the market they're people that actually want coverage so if i think about the the i mean the pickle incident that happened and unfortunately you know that i mean 19 million dollars and we would have loved to pay that at all of that um the misconception there was everyone thought that we're going to pay out 19 million and we're about to go and solve them but as uh cucumber mentioned we don't use any of our own capital it's just what's available in that pool so um the majority of those holders were users of the of the pickle platform or they were also liquidity providers so they may have already been holding a claim token after minting it and provided it so we definitely need to get we've

definitely got some smart people in our community working on the the analytics side of it to show us purchasing power so how many cup claim tokens are being bought versus minting you know available and what's available in the pool uh versus what's already been purchased i mean these are all good indicators as to what the risk model is in that pool as well because if you've only got say 20 of the claim tokens purchased um you know and there's this there's this big um there's this big pool of uh additional tokens you know it might be less you you may want to just go and provide liquidity there knowing that um the majority of those claim tokens are going to be owned by liquidity providers you know and then only 20 are going to want the additional claim

so you're likely to only lose you're likely to be up for a very small portion of the funds uh if there was a claim so that that's yeah that's probably um from a high-level view that i can get into without being technical but i'll let you come and go through the technicals yeah and i was just thinking like it's probably like a lot of d gens because because because the only people that are using are like the d gens or the power users we call them but like smart powers you know you know people understand the risks and like yeah this might be a little risky to play you know why don't i get some cover on that but yeah i mean as far as we know and as far as my experience goes i mean there's like there's very little chance that there's anybody with uh who doesn't understand

how to use um you know ave or uniswap who's buying cover right like yeah exactly i think one of the the key things is that yeah you're right the degens right so let's i mean dreams is probably one word but the funny thing is that those dgents have been playing and power using for so long actually the type of people who want to be liquidity providers there's a good chance they understand how risk management works right and they've you know well maybe not i mean if they but there's a good chance that they do so you know with our platform you need to understand which i mean being in coverage or any type of insurance market i mean that's key right is understanding risk probability and managing that so if you're not already of that mindset then it's probably not the

the the protocol for you to be a liquidity provider or a coverage provider i'd probably say outside of that until you understood that because you know a good example is you know i wouldn't go and put all of my coverage to farm in one protocol you're exposed if that one protocol has a hack right so and then you're up for everything so you know there's some other you know user experience things that we can do and help liquidity providers spread that risk at the time that they go and actually uh put their diet cucumber were you saying something i i just overtopped you no no i just had been turning my mic on and off uh but yeah i mean i'll add to that real quick i think absolutely our users are power users and not you know not even your run of the mill defy user at this point

i think the your run-of-the-mill defy user is just not buying coverage period right now right um that's that's just the harsh reality um and you know in order to us to get to a point where the average user does buy coverage i think first of all risks have to go down unfortunately um and i think they are i think through a combination of you know greater awareness about the need to get your code audited just more and more hacks occurring i think that will eventually cause most people to just not even pay attention to the riskier projects that release their code in a couple days and didn't get it audited with anonymous dev um and then once that happens i think the perceived risk of

all the protocols will go down premiums will come down and then maybe coverage will become more affordable and more people will actually start buying it but certainly right now our interactions are with power users and you know people that really do understand the risks of the of the d5 space um and so yeah there's a lot of challenges to expand that net but you know first of all we need to solve some technical challenges as well um one of one of the biggest things that we want to do is right now we use balancer pools to sell the the claim tokens but we want to introduce a layer to order book to the buying and selling of claim tokens and we're talking with a few part potential partners right now so hopefully we'll be able to make that collaboration soon but uh that

will help a lot because then there will be less slippage when uh when people buy the claim tokens so from a technical perspective that will make buying coverage more accessible also i think what ted was saying about spreading out your risk across multiple pools is extremely important so we we can achieve that kind of risk management but from the user's perspective whereas but the user is required to actually take the action to make that risk management whereas with nexus it's kind of built in and and i think that that points out one of our challenges but one of our advantages which is we we're a lot more flexible and we leave things decisions like that up to the underwriter and the coverage provider themselves but at the same time since it's not

built in if that underwriter doesn't make the right decision for risk management they can suffer a large loss right so actually building tools to make that risk management easier for them is something that we also need to do going forward but i think we're so far away from having just your average finance consumer on the street interact with defy insurance protocols that we need we need to focus on our core user base still which is people that have already been introduced to d5 and then let other people do the onboarding of the person on the street into d5 and then eventually hopefully into our into our platform i mean you're talking about the average financial user obviously anyone on the street is going to have

insurance um do you see kind of a bridge between the d5 insurance ecosystem and and the traditional insurance ecosystem or do you expect more of a revolution where uh these insurance companies are really going to want to continue doing their own thing and you know it's either going to be d5 providing a a cheaper alternative or do you see it as some sort of merger or parallel where we could see some of these traditional insurance firms adopt d5 strategies and protocols i'll give my personal opinion that i want to hear what ted has to say about that but i don't think it will be traditional insurance companies i think it's much more likely though to

be tech companies that are already starting to integrate with crypto in general like you know the the paypals and the squares of the world i think it's much more likely that they will start offering various d5 products to their customers um and then one of those will be coverage and insurance at some point so i think that's probably the route that will happen i i think it's extremely unlikely it will come from your traditional insurance companies though yeah i don't see um i don't see us building out the you know the same tools that we have today that exist in kind of even fintech where you're trying to onboard a retail user that way us ourselves i think that that's going to be um absolutely

driven by these neo banks you know like if you think about how coinbase some of these other guys are going they're going custody around right so they want to do this custody holding of these tokens so that they can onboard users and have that kind of custodial process of crypto so you know i see more of that happening and those guys being the ones to offer the insurance because there's this way of still be able to charge a small fee we're custodian you you know we're doing the custody of your crypto you don't have to manage any of that you can just come and trade on our platform um and and all the little fees will be built in there so i see them kind of still extending to the d5 stack or still extending to the ethereum stack to offer that insurance

but not creating it themselves i don't i don't see a fintech company coming in and changing the world with their upfront fintech design and adding crypto to the back of it i um i absolutely see these these neo banks as being the next stage towards um you know onboarding retail users and helping manage their experience yep and i was listening to the bankless podcast the other day and they were speaking about this thesis protocol sync thesis which basically like eventually because these d5 printers are so dense they'll sink to the bottom and any you know ui or front layer you know institution or c5 provider will basically just be using them on the back end of their front end which will which they will provide to

um you know to retail traders and to investors alike um super interesting concept i mean it just shows like the power of what's going on currently um you know and how it kind of it eats away at what is currently there but you know overall in a productive way um now we're about running out of time here so i'm thinking rob we should hop into a little bit of a rapid fire round off the agenda we'll ask you guys some questions um you know a few sentences answer and then we'll get on to the next one uh if you don't want to answer you guys can pass we'll say whose name to answer each question so that way that we don't get tripped up here all right i'll go first rob um i'm going off the agenda do you expect pushback from the goliath of the

insurance industry i suppose that we just hit that but i'm curious as to what kind of pushback you guys would expect ted um yeah look no no one's gonna want their market share taken off them and they're gonna let it go right so yeah look i do expect um some sort of pushback i don't know what that looks like though so um it'll definitely be about removing friction for them for their clients you know and making it quicker it's going to need to turn around um a lot sooner and i think it's going to have to get cheaper as well so yeah i think that i think they're gonna push back absolutely got it uh cucumber can you touch on the tokenomics of uh cover and governance as a whole sure so we have a release schedule

for farming and that will end in about six months so six months from launch and then from there we have a perpetual inflation model that kind of halves every year but you know we are releasing our governance module on the 15th and then it will be up to token holders to validate that model and decide if there's anything that they want to change gotcha so not decentralized completely yet in terms of governments but coming soon yes exactly nice and that's the way to do it i mean if you start off decentralized you usually get screwed a few months later it's just kind of how it goes uh is the covered network and protocol currently bottlenecked by the scaling solution of eth

uh if so you know what what's the plan to work on it i know that we touched on the l2 order book cucumber definitely curious uh on that yeah so the uh l2 order book is the only thing that we could use from a you know a faster base layer network so if you could do order books on layer one that would be great for us it would solve some problems but that's really the main issue we face our core contracts really aren't affected by eve and its scaling issues any upcoming partnerships or just feature releases on the roadmap that you're excited to share sure so we're working on v2 i don't want to give a date but i think we're pretty happy with it and we're definitely making a lot of progress and then the other other important partnerships would be a potential

layer two order book partnership um and then on top of that we're always talking to many many different protocols about them um getting listed for coverage on our site but but also then them also adding liquidity to help make that coverage cheaper so i mean we're in conversation with dozens of protocols at this point about that nice and loopering or diversify would make a good a good collab on that l2 exchange not i'm sure y'all are obviously aware ted will a percentage of fees from the use of the protocol uh get rolled back into the community at some point very broad question from twitter but um yeah look it's it is a um it is a broad question but look at this that we just we wanted to go with this is a governance token

we wanted to keep it as non-fee accrual when we first released it uh for a number of reasons um but we we didn't want to just have um kind of rent seeking users either from that point of view i mean um it's probably been a bad bit of talk about that in the space and we wanted the community to decide what they want to do with it right so i mean we've left a lot of those economics for the cover token up to the community after december 15. so we just wanted to make sure that we had a scheduling and a supply that they were happy with um they definitely weren't happy with the first one we rolled out so we've worked with them very yeah that was that was quite that was quite a little twitter day right there it was an interesting day

because it was also my birthday so i spent most of my my birthday kind of you know swatting away um twitter trolls and you know the likes and you know our team was caught in a very rough place like you've just heard about our genesis it wasn't like there was this protocol it was developed after the safe token so you know we've had we've got these guys have come along with this idea and wanted to try and you know get the benefit of that but also realize hey we've already created a community so it was this tough kind of um trade-off but i think they got there in the end really well i mean that's that's come around um so december 15 i mean if you're listening and you're holding cover tokens governance is live we'd love to see the proposal as to what

you think we should do with these fees and how they should be accrued to um to whoever you know the users or to the protocol yeah you know our wrapped nxm yield farming days over summer will be right up in there baby let's go good man [Laughter] oh well that was an absolute pleasure y'all rob what else you got for us anything else you know i think we're just about out of time but you know what you you always ask one question that i i like and i'll i'll ask it this time um if you had to be stuck in an elevator you know you're going down an elevator get stuck whatever and uh it's from someone in the tradfi or some celebrity somewhere that you could pitch defy to warren buffett kanye west whoever it is who

who would you want to pitch it to uh i'll start first i'll say um i'll say peter schiff i got him and uh yeah yeah i would i would uh you know if i was stuck in an elevator with him i would something inside me would just enjoy rubbing him up the wrong way about everything crypto related and just absolutely trolling him to his face so love it that'd be me cucumber so i'm gonna say dave ramsey just because i think um well first of all he's anti-debt and most crypto people don't have debt so it fits his user baseball so he just has a very wide reach um with people that i think could ultimately really see the value in

crypto so i think that would be a really good bang for my buck you know in terms of getting exposure yeah yeah go-to like financial literacy person in uh when i was growing up in high school wasn't that long ago um they would like show videos of him in my econ class and talk about how dave ramsey does knows this does this yeah i like that one it's a good pick all right well yeah this was absolutely a pleasure as always um good talking to you guys andy anything else yeah good stuff no i'm excited for the governance launch um been watching for a while now and really keen to uh collaborate more in the future uh best of luck and uh yeah i'm glad that i can make time for this

as well as rob and uh y'all as well oh thanks for having us on andy and robert really appreciate it mate yeah thanks guys it's been a pleasure peace [Music] thanks for listening to the d5 by design podcast until next time defy slave team